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Powerful data

It is not a coincidence that the widespread closures of peer-to-peer lending platforms in China, totalling 721 in the first half, were concentrated in cities that are also plagued by bubbly house prices. In Hangzhou, for instance, two sports stadiums were converted into petition centres for investors suffering losses after masses of P2P platform owners had absconded or had their offices raided by police.

According to Guangzhou-based media TFCaijing, the money recycled through the network of P2P financiers was largely engaged in the country’s residential real estate market in one way or another.

In overheating markets like Shenzhen the purchase of new apartments has become so frenzied that the local government has introduced a policy requiring all new residential projects to be sold under a lottery system. It allows first-time homebuyers the priority to draw lots but the financial pledges required to enter the “lucky draw” can be staggering – as much as Rmb5 million ($740,000). The need to raise cash for such schemes is thought to have prompted a sudden surge in redemptions from various P2P platforms and quickened their implosion.

Recent events have highlighted once again the systemic risks posed by the property sector to the financial system. Perhaps it also explains why regulators have allowed banks in Shanghai, another property-mad city, first access to a new national property registry to help manage their risks (quite a privilege as even the anti-graft body can’t use it yet).

Through the database, banks in Shanghai can check who owns what across the country as well as the collateral status of the properties – and do so without having to seek the permission of the asset holder. The system is even said to be able to trace the apartment owner’s family connections, meaning it can detect whether a person is holding properties through other relatives. That could help banks properly assess whether a buyer is qualified to obtain mortgages, said Xinhua.

The pilot scheme involving Shanghai comes at a time when household debt is being viewed as a rising risk to the country’s banking system. Guo Shuqing, chairman of the China Banking Regulatory Commission, told the People’s Daily in January that taming the explosive growth in household borrowing is vital for deleveraging the economy.

The category, totalling Rmb3.6 trillion in the first half, accounted for nearly 40% of the new loans extended by Chinese lenders, and credit rating agency Fitch believes the nation’s household debt-to-disposable income ratio could near 100% by 2020, versus 82% at the end of 2017 (the figure for the US is 105%).

For the general public, the existence of a national property registry might suggest something else is coming: a long-touted property tax.

The registry provides the necessary transparency for a levy to be exacted. Mulled since October 2011, the introduction of a property tax has traditionally met local government resistance (see WiC389), as well as from homeowners – both for self-use and for investment. Around 29% of Chinese urban households own at least one vacant property, according to FT Confidential Research (based on data from the second quarter). These non-yielding assets seem set to become a tax burden for their owners.

The vested interests that formerly opposed the tax are starting to wilt. Most notably the attitude of municipal governments is changing as land sales become a less reliable source of income. A property tax, likely levied annually if the US model is copied, would provide a more sustainable source of revenue and it has started to look more desirable, Phoenix News reckoned.

However, a property tax law will first need to be formulated and the legislation is still in the early drafting process, according to a spokesperson for the National People’s Congress. Some predict it could be at least three years before the new law comes into force.

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